Munich Re to offer $20b oil drilling coverage

Monte Carlo: Munich Re, the world's biggest reinsurer, plans to sell as much as $20 billion (Dh73 billion) of liability cover to oil rig operators following the Deepwater Horizon oil spill in the Gulf of Mexico.

The insurance product will be limited to a specific drilling operation and targeted at joint ventures in the Gulf of Mexico, the Munich-based reinsurer said Saturday at a conference in Monte Carlo.

Rig operators can currently buy liability insurance paying out a maximum of $1.5 billion, Munich Re said.

"If coverages are available, companies will buy them because inability to pay high compensation claims can lead to insolvency and mere speculation about such an eventuality can hit their share price," Torsten Jeworrek, Munich Re's head of reinsurance, said in a statement.

Blame

Insurance coverage for offshore rigs in the Gulf of Mexico will likely rise 30 per cent following the Deepwater Horizon explosion in April that caused the worst environmental disaster in US history, according to Lloyd's of London CEO Richard Ward.

BP Plc, the largest gas and oil producer in the Gulf of Mexico, said last week that contractors Transocean Ltd and Halliburton Co should share the blame for the catastrophe.

Munich Re's liability cover would pay for clean-up costs, loss of earnings at local businesses and property damage, Jeworrek said.

Reinsurers such as Munich Re and Swiss Reinsurance Co, are meeting clients and brokers to discuss rates and conditions.